CVS Pharmacy is revamping the way it reimburses its pharmacies for prescription medications, which the company said in an announcement Tuesday will bring more transparency and simplicity to its drug pricing system.
The new approach, named CVS CostVantage, will use a formula that includes “the cost of the drug, a set markup and a fee that reflects the care and value of pharmacy services.” This method will determine the drug’s price and reimbursement with pharmacy benefit managers, known as PBMs, and payors. It is expected to launch for commercial payors in 2025. The Wall Street Journal was first to report the news.
The move could change the cost of prescription drugs for some patients, although it will not necessarily make all medicine cost less. Some drugs may cost less, while others might rise in price, CVS executives said. More prescription costs should fall than rise for consumers, employers and health insurers, they said.
“We are leading with an approach that will shift how our retail pharmacy is compensated by implementing a more transparent and sustainable model that fairly aligns pharmacy reimbursement to the quality services we provide,” said Prem Shah, co-president of CVS Pharmacy and chief pharmacy officer at CVS Health. “It provides our PBM and payor clients a foundational step towards more pricing clarity for consumers.”
CVS will unveil the new system, along with other new initiatives, at its 2023 Investor Day on Tuesday.
The announcement is the latest in series of changes that are roiling the prescription drug pricing model. The high cost of medications is one of Americans’ biggest health care headaches, and the lack of transparency surrounding how prices are set have been a focus of a multitude of players, including Congress, which is considering several bills to force more light into the process.
Currently, the prices customers pay for drugs and the payments pharmacies receive are largely determined by middlemen known as pharmacy benefit managers, which negotiate rebates from drug manufacturers to insurers. CVS Health’s Caremark is one of the major PBMs in the highly concentrated industry.
CVS Caremark’s business suffered a significant blow over the summer when a major California health insurer, Blue Shield of California, announced it will no longer use the company as its pharmacy benefit manager and instead will partner with several companies, including Amazon Pharmacy and Mark Cuban Cost Plus Drug Company.
Cuban’s company uses a pricing model similar to the one CVS announced Tuesday. Blue Shield said earlier this year that Cuban’s pricing model will be “simple, transparent and more affordable.” The move could shake up the prescription drug pricing system beyond Blue Shield’s 4.8 million members.
This is a developing story. It will be updated.
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